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Fiat Currency And Gold Standard Essay

696 words - 3 pages

Fiat Currency Vs. Gold Standard
To understand the difference between Fiat Currency and Gold Standard you must first know what each of these terms mean. Fiat currency is a common typre of currency whose value is based on the issuing authority’s guarantee to pay the stated amount on demand, and not on any intrinsic worth or extrinsic backing. The Gold Standard is a monetary system in which a country’s government allows its currency unit to be freely converted into fixed amounts of gold and vice versa. The exchange rate under the gold standard monetary system is determined by the economic difference for an ounce of gold between two currencies.
Gold has been used as a currency of choice ...view middle of the document...

At the onset of the war. the United States corporations had large debts payable to European entities, who began liquidating their debts in gold. With debts looming to europe, the dollar to BRitish pound exchange rate reached as high as $6.75, far above the (gold) parity of $48665. This caused large gold outflows until July 31, 1914 when the New York Stock exchange closed and the gold standard was temporarily suspended. In order to defend the exchange value of the dollar, the United States Treasury Department authorized state and nationally-charted banks to issue emergency currency under the Aldrich-Veerland Act, and newly-created Federal Reserve organized fund to assure debts to foreign creditors. These efforts were largely successful, and the Aldrich-Veerland notes were retiled starting in November and the gold standard was restored when the New York Stock Exchange re-opened in December 1914.
As the United States remained neutral in war, it remained the only country to maintain its gold standard, doing so without...

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